Lowdown on Tax Issues

Old Aug 16th 2020, 8:49 am
  #16  
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Default Re: Lowdown on Tax Issues

Originally Posted by GOALFIRE View Post
I believe the IRS will tax your SS depending on your total income.

https://www.bogleheads.org/wiki/Taxa...urity_benefits
That is for someone living in the USA. When you are living in the UK and receiving SS the UK-US Double Taxation treaty takes precedent and SS is only taxed in the UK. This is well established to be true and even in the TurboTax user forums there are instructions on how to get TurboTax to implement this since it defaults to the US resident position.

https://assets.publishing.service.go...-_in_force.pdf

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Old Aug 16th 2020, 10:30 am
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Default Re: Lowdown on Tax Issues

Originally Posted by durham_lad View Post
That is for someone living in the USA. When you are living in the UK and receiving SS the UK-US Double Taxation treaty takes precedent and SS is only taxed in the UK. This is well established to be true and even in the TurboTax user forums there are instructions on how to get TurboTax to implement this since it defaults to the US resident position.

https://assets.publishing.service.go...-_in_force.pdf
Excellent, thanks for correcting me.
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Old Aug 16th 2020, 11:55 am
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Default Re: Lowdown on Tax Issues

Originally Posted by GOALFIRE View Post
Excellent, thanks for correcting me.
You’re welcome.

The double taxation treaty and correct filing of taxes can be extremely complicated. I have recently been looking into the SS issue and how to report it on tax returns since next year my wife and I will start collecting OAP and the following year she will begin collecting SS. (I am waiting until age 70 before claiming SS)
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Old Aug 16th 2020, 7:33 pm
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Default Re: Lowdown on Tax Issues

@ durhamlad:

I know that delaying SS can make a big difference to payments when you are still employed, but does it make much difference if you are no actually longer working in the US?

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Old Aug 16th 2020, 8:51 pm
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
@ durhamlad:

I know that delaying SS can make a big difference to payments when you are still employed, but does it make much difference if you are no actually longer working in the US?
SS still increases by about 8% per year between full retirement age and age 70 even if you are not working. Actuarially you get the same amount of money if you take it at age 62 or age 70, assuming you die at your expected life expectancy. However, the surviving spouse gets their SS boosted to the higher of the 2 SS payments. I earned much more than my younger, fitter, wife and contributed for 28 years while she only contributed for 14 years and will be drawing less than half of what I will be getting. So, it is a form of life insurance in that when I die her SS will be doubled.
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Old Aug 16th 2020, 9:00 pm
  #21  
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Default Re: Lowdown on Tax Issues

My SS totals 14 years right now.

I presume the amount I would take at age 62 would be the same as if I took it at 67 (bar any inflationary-related rises)?

However, if I waited until I were 70, it would increase by 8% for each of the three years between 67 and 70?

Cheers
Ed
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Old Aug 16th 2020, 9:16 pm
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
My SS totals 14 years right now.

I presume the amount I would take at age 62 would be the same as if I took it at 67 (bar any inflationary-related rises)?

However, if I waited until I were 70, it would increase by 8% for each of the three years between 67 and 70?

Cheers
Ed
No, the amount you collect at age 62 is much less than what you would collect at age 67. If SS has your life expectancy at age 83 then the total money collected between age 62 and 83 will the same as that collected between 67 and 83.

if you create an account at https://www.ssa.gov/ then you can see your estimated benefits at age 62, 67 and 70. You can also create forecasts based on when you plan to stop paying in. I would definitely recommend creating an account and checking your record (it shows all the years you have paid in and the earnings you made).
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Old Aug 16th 2020, 10:56 pm
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Default Re: Lowdown on Tax Issues

durhamlad:

I had assumed that the increase in SS between 62 and 67 was purely to do with extra years in employment during the interim 5 years and therefore x number of extra years of SS payment--ie you would build up extra years of SS by staying employed until you are 67 and by making annual contributions.

I've accessed my SS account, and I see estimated benefits for 67, 70, and 62.

I had assumed the quoted estimates for each age is what I would get if I were to continue in employment and thus making SS contributions on an annual basis until said age.

Are you saying that the respective estimated figures are based on my SS contributions thus far? And if were to retire today, and no longer pay SS contributions, I could wait until I was 62 (or 67 or 70) and receive the published estimated amount without making any further years of contribution from today?
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Old Aug 17th 2020, 5:15 am
  #24  
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Default Re: Lowdown on Tax Issues

This is what it says:

If You Stop Work Before You Start Receiving Benefits

If you stop work before you start receiving benefits and you have less than 35 years of earnings, your benefit amount is affected. We use a zero for each year without earnings when we calculate the amount of retirement benefits you are due. Years with no earnings reduces your retirement benefit amount.

Even if you have 35 years of earnings when you stopped working, some of those years may be low-earning years. When you file for retirement benefits, those years are averaged into your calculation, creating a lower benefit. However, if you had continued to work, your low earning years are replaced with your high earning years. Higher earnings increase your benefit amount.

In short, if I stop working now, I will get less than the estimated amount at 62, 67, 70. How much less is very difficult to know, though.
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Old Aug 17th 2020, 8:50 am
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Default Re: Lowdown on Tax Issues

Yes, the standard estimates on the site assume you will continue working at the same wage level until you take SS but there is, or was, a place on the site where you can put in your own estimates for future earnings where you can enter zero. That way you can see the figures you would get get if you stopped working now or some year in the future. I used the calculator to prepare for my early retirement when I was age 55, over 10 years now. I can assure you that from age 56 the estimates for age 62, 67 and 70 have been different. Looking back at my statement when I was age 62 (and had not been earning anything for 7 years), the estimated amount at 62 is 58% of what I would get at age 70 and 75% of what I would get at age 67.

There are various calculators out there, Google is your friend. The most accurate will be from SSA.gov where you can enter all the figures you want

https://www.ssa.gov/oact/anypia/index.html

To use the Online Calculator, you must have a copy of your earnings record because you will need to enter your covered earnings for each year. This calculator is more accurate than the Quick Calculator.
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Old Aug 17th 2020, 9:33 pm
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Default Re: Lowdown on Tax Issues

I can't find anywhere on my SS site to make my own calculations based on retiring early, but I'll see if I can use the link you supplied, thanks.
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Old Aug 18th 2020, 6:06 am
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Default Re: Lowdown on Tax Issues

The link was useful, and this whole thread has been very useful--I've copied and pasted it and made notes.

I have a clarification question.

My SS payments will be taxed by HMRC. If, hypothetically, my SS is lower than 12,500 K pounds, then would that put me in the "Personal Allowance" band? In other words, would my SS be treated integrally for British taxed purposes, or would other parts of my annual income be taken into account for calculating tax on it, such as my US State pension (not taxable in the UK according to this thread), 403B or Roth IRA withdrawals, and, eventually, UK State Pension (in part)?
Thanks
Ed
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Old Aug 18th 2020, 9:50 am
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
I can't find anywhere on my SS site to make my own calculations based on retiring early, but I'll see if I can use the link you supplied, thanks.
I started doing the accurate estimates when I was 50 to see how much extra SS I would get by working until 55, 56, 57, etc. The increase in SS by continuing to work was remarkably low. This is because of the “bend points” in calculating SS as it is designed to replace a much larger percentage of lower income workers.
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Old Aug 18th 2020, 10:04 am
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Default Re: Lowdown on Tax Issues

Originally Posted by Streetlegal View Post
The link was useful, and this whole thread has been very useful--I've copied and pasted it and made notes.

I have a clarification question.

My SS payments will be taxed by HMRC. If, hypothetically, my SS is lower than 12,500 K pounds, then would that put me in the "Personal Allowance" band? In other words, would my SS be treated integrally for British taxed purposes, or would other parts of my annual income be taken into account for calculating tax on it, such as my US State pension (not taxable in the UK according to this thread), 403B or Roth IRA withdrawals, and, eventually, UK State Pension (in part)?
Thanks
Ed
Any income excluded by the tax treaty such as a US State pension is not included in the HMRC tax calculation. If you have a US State pension of £10k and total UK income of £12k you will not pay any HMRC tax.
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Old Aug 18th 2020, 12:12 pm
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Default Re: Lowdown on Tax Issues

Here is an excellent free calculator for planning on when to take SS. (Requires you to know how much you will receive at your full retirement age)

https://opensocialsecurity.com/

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